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Motorcycles: Franchises

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Fuel prices shot up dramatically during 2007; an average 17% increase for petrol and 28% for diesel year on year by May 2008.

It’s a financial burden for those already hit by tighter finances, and is pushing people to consider cheaper forms of transport, including motorcycles.

The market is as wide-ranging in products as cars, and offers cheaper motoring for two-car families even if swapping to two wheels involves buying a performance bike.

Motorcycles can be just as attractive a proposition for car dealers, increasingly facing tighter margins and rising overheads.

Adding a franchise either within the showroom or as a separate unit on or off site can bring attractive returns for a relatively low investment.

Tim Doyle, business and dealer development manager at BMW Motorrad, says: “The cost of entry is less, standards are high, it’s a positive image and the profit per unit is strong. This makes it attractive to car dealerships.”

However, shared sites are still uncommon and even manufacturers with interests in both types of vehicle tend to split the franchises.

Half of BMW’s motorcycle showrooms share a building with its cars, while just 15 of Honda’s 112 motorcycle retailers are linked to a car franchise.

This is even less for manufacturers with no car interest.

Despite similarities in running processes, the two businesses are very different.

Most bike dealerships are around a quarter of the size of their car selling equivalent.

Showrooms are typically between 2,500 and 3,000 square foot, with the workshop taking up the other half of the premises.

Similarly, due to lower unit and servicing costs, revenue is typically far smaller for a bike dealer, typically between £2.5 million and £3 million, according to Mark Heywood, general manager at Triumph.

This is balanced by a typical return on sales of more than 3%.

And many achieve more than 5% with a few reaching between 10% and 15%.

For those who expand into accessories, there can be even higher margins, usually above 35%.

By contrast, even the best performing AM100 groups are operating at between 3% and 4% with their car and LCV franchises.

Because motorcycles are a specialist product and a luxury purchase, customers are usually more knowledgeable and passionate about what they are buying.

Dealers are expected to be able to offer advice and to be as enthusiastic about the products as their customers, if not more so.

Geoff Selvidge, Yamaha UK motor-cycles division manager, says: “It’s vital for dealers to be enthusiasts. Customers do not need the products, they’re buying because they want a bike. They’ll always need a car.

“Customers know more about the product, 90% are buying for leisure, and 10% are commuters, but that’s growing due to fuel prices and bad public transport. But they quickly get into motorcycling and commuting becomes secondary to leisure.”

#AM_ART_SPLIT# As a leisure purchase, motorcycle sales vary seasonally. John Cooke, dealer principal at St Leger Subaru and Harley-Davidson, estimates that around 75% by volume will sell between March and October.

But the reward for setting up an effective bike franchise is an affluent and more loyal customer base visiting more frequently.

Bikers buyinto a lifestyle, and it’s common for them to visit their dealership purely to socialise with staff and friends.

Whereas a car buyer will often only visit once a year for a service, motorcycle customers visit on average four to five times a year with up to 12 times being common. Some customers drop in weekly for coffee.

Simon Read, franchising manager at Honda UK’s motorcycles division, says: “The main difference is people choose to be there, they’re making a fun purchase not buying a mode of transport. There’s no time constraint and they’re usually happy to spend time talking over a cup of coffee.

“We’re aiming for a club or lounge type atmosphere where bikers are happy to spend time..” Ian Wilson, dealer development manager at Aprilia, agrees: “Two qualities are important for a bike dealer; the first is attitude and the second is location, everything else we can work around. We want adequate premises which are clean and well equipped, and technicians have to be trained. There are no other specific requirements.”

Most dealers will organise ride-out events from the showroom, giving an opportunity to get to know customers better and demonstrate new vehicles and accessories.

Car dealers wanting to expand into motorcycle sales need to either be passionate about the sector or hire enthusiastic staff to form this connection.

Motorcycles offer a strong retail market, with fleet sales beginning to pick up and good demand for used vehicles. New entrants such as Harley-Davidson are selling three new to two used, and more established players are seeing a 1:1 new to used ratio.

Wilson says: “The used market is buoyant, and bikes up to two or three years old are quite an attractive proposition. There’s also a booming classic bike scene, by which I mean more than 10 years old.”

The motorcycle market is driven by enthusiast demand, and it’s vital for dealers to be able to tap into this passionate customer base.

But with steep overheads and tight frame margins, all the parts of the business need to work together to make any money.

Successful dealers will be able to combine a professional working ethic with a strong interest in the products they sell.

  • Read this story in full in the June 27 issue of AM. To subscribe to AM magazine click here or call 01733 468659.
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